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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
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For the fiscal year ended April 1, 2005 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934. |
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For the transition period
from to . |
Commission File Number (0-21767)
VIASAT, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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33-0174996 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
6155 El Camino Real, Carlsbad, California 92009
(760) 476-2200
(Address, including zip code, and telephone number, including
area code, of principal executive offices)
Securities registered pursuant to Section 12(b) of the
Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.0001 Par Value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange
Act). Yes þ No o
The aggregate market value of the voting stock held by
non-affiliates of the registrant, as of October 1, 2004 was
approximately $415,911,987 (based on the closing price on that
date for shares of the registrant’s Common Stock as
reported by the Nasdaq National Market). Shares of Common Stock
held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons
may be deemed affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant’s Common
Stock, $.0001 par value, as of June 3, 2005 was
26,897,516.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A in connection with its 2005 Annual Meeting
of Stockholders are incorporated by reference into Part III
of this Report. Such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days
after the registrant’s fiscal year ended April 1, 2005.
VIASAT, INC.
FORM 10-K
For the fiscal year ended April 1, 2005
INDEX
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PART I
All references in this annual report to our fiscal year 2005
refer to the fiscal year ended on April 1, 2005. Unless
otherwise indicated, all references in this annual report to
periods of time (e.g., quarters and years) are to fiscal periods.
We were incorporated in California in 1986 and reincorporated in
Delaware in 1996. Our website address is www.viasat.com. Our
website is not part of this filing. We make available free of
charge through our website our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and all amendments to those reports as soon as
reasonably practicable after such material has been
electronically filed with or furnished to the Securities and
Exchange Commission (SEC). They are also available free of
charge on the SEC’s website at www.sec.gov. In
addition, any materials filed with the SEC may be read and
copied by the public at the SEC’s Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549. The public may
obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330.
Introduction
We are a leading provider of advanced digital satellite
communications and other wireless networking and signal
processing equipment and services to the government and
commercial markets. Although we initially focused primarily on
developing satellite communication and simulation equipment for
the U.S. government, we have successfully diversified into
other related government as well as commercial markets. During
the period from April 2000 to January 2002, we acquired
(1) the satellite networks business from
Scientific-Atlanta, Inc. (SA), (2) the Comsat Laboratories
business from Lockheed Martin Global Telecommunications, LLC
(LMGT), and (3) US Monolithics, LLC (USM). These
acquisitions further enhanced our strategic positioning in the
commercial satellite communication market and significantly
expanded our intellectual property portfolio. As a result of
this diversification, we have transitioned from a primarily
defense-oriented company to a company with near equal amounts of
government and commercial business. We believe our
diversification, combined with our unique ability to effectively
apply technologies between government and commercial markets,
provides us a strong foundation to sustain and enhance our
leadership in advanced communications and networking
technologies.
We develop and produce satellite ground network systems and
other related defense and commercial digital communications
equipment. Generally, our sales consist of either:
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Project contracts to study, research, develop, test, support,
and manufacture customized communication systems or products for
both government or commercial customers. Research and
development costs for these customized projects and products are
often customer-funded. |
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Selling, deploying, and supporting our standard
“off-the-shelf” products for both government or
commercial customers. These standard products are generally
developed through a combination of customer and discretionary
internal research and development funding. |
Our customers include a variety of government and commercial
entities. Government contracts may be directly with U.S. or
foreign governments, or indirectly through domestic or
international prime contractors. Purchasers of our standard
off-the-shelf products include U.S. and foreign governments,
domestic and international prime contractors, telecom service
providers, and commercial enterprises. We also enter into
contracts to design, develop and manufacture customized
satellite network systems or equipment for domestic and
international commercial customers. Individual contracts may
range in value from thousands of dollars to tens of millions of
dollars.
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Segment Overview
We are organized principally in two segments: government and
commercial. Our government business encompasses specialized
products principally serving defense customers and includes:
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Tactical Data Links. Our Tactical Data Links product line
primarily consists of our multifunction information distribution
system (MIDS) product. The MIDS terminal operates as part of the
Link-16 line-of-sight tactical radio system, which enables real
time data networking among ground and airborne military users
providing an electronic picture of the entire battlefield to
each user in the network. We are one of only two current
U.S. government certified providers of MIDS production
units. |
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Tactical Networking and Information Assurance. Tactical
Networking and Information Assurance products include our
information security and ViaSat Data Controller
(VDC) products. Our information security products enable
military and government communicators to secure information up
to “Top Secret” levels. Our VDC products provide
reliable military tactical communication channels using
innovative error correction technology. Technology from some of
these products are integrated into some of our existing tactical
radio products (such as MIDS and UHF DAMA satellite products) as
well as sold on a stand-alone basis. |
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Mobile Satellite Communication Systems. We have a
15 year history of leadership in the UHF satellite
communication terminal market. This includes the design and
development of modems, terminals and test and training equipment
operating over the military UHF satellite band. These products
are used in “manpack” satellite communication
terminals as well as airborne, ship, shore and mobile
applications. In addition, we also specialize in leveraging our
commercial satellite technology into military applications. We
generally focus on opportunities for high-speed satellite
communications products which operate in higher frequencies. |
We believe our long standing strength in both commercial and
government satellite communications technologies provides us an
advantage as the U.S. military looks to upgrade its
satellite technology with a mix of funded development and
commercial technologies.
Our commercial business comprises an end-to-end capability to
provide customers with satellite communication equipment
solutions and includes:
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Consumer Broadband. Our consumer products include the
development of DOCSIS (Data Over Cable Service Interface
Specification)-based and DVB-RCS (Digital Video Broadcast-Return
Channel Satellite) satellite broadband systems, including
satellite modem termination systems for system operators and
customer premise equipment. |
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Mobile Broadband. Our mobile broadband products include
the design and development of airborne, maritime and ground
mobile terminals and systems. Existing certified systems in the
in-flight broadband market include Connexion by Boeing and
SKYLink for ARINC. We are also developing systems in the
maritime and ground mobile markets. |
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Enterprise VSAT. Our Enterprise VSAT (Very Small Aperture
Terminal) satellite communication products and services
comprises a wide range of terminals, hubs, and networks control
systems as well as network management services for customers in
North America and internationally. |
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Satellite Networking Systems Design and Technology
Development. We believe we have extensive capabilities in
satellite networking design and development and engineering
support for both commercial and government customers. |
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MMIC Design and Development. Our subsidiary, USM,
specializes in the design of monolithic microwave integrated
circuits (MMICs), packaged components, and modules for
commercial, military and space applications. Areas of expertise
include high frequency communication technology, MMIC
semiconductor design, high-power transceiver design, high levels
of functional integration, high-frequency packaging and design
for low-cost manufacturing. |
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Antenna Systems. We provide antenna systems for both
commercial and defense communications. We have a 40-year legacy
in the design, test, manufacture and installation of antennas
from three to 18 meters. Applications for these antenna
systems include large system gateways, VSAT or video broadcast
hubs, image retrieval by satellite, transportable antennas, and
telemetry, tracking and control. |
With expertise in commercial satellite network engineering,
gateway construction, and remote terminal manufacturing for all
types of interactive communications services, we believe we have
the unique ability to take overall responsibility for designing,
building, initially operating, and/or maintaining a fully
operational, customized satellite network serving a variety of
markets and applications.
The ViaSat Advantage
We have consistently aimed to achieve and sustain competitive
advantages through:
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A culture of innovation and advanced technology.
Executive management has always been technically oriented. We
place high value on technical competence and expertise among our
employees. |
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Focus on markets that place a high value on innovative
technology. Since technology is fundamental to our culture,
we tend to target markets and customers who value what we do
best. |
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A cohesive, experienced management team. Our three
founders have worked together for over 20 years (including
experience prior to starting ViaSat) and turnover among
executive management leadership is very low. We believe we have
significant management experience within our core business areas
and in working together as a team. |
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Low employee turnover rates. We believe our culture and
sustained growth help continue to foster an exceptionally low
employee turnover rate — especially for a high
technology company. We believe a low employee turnover rate
helps reduce overall costs and sustains long-term relationships
with our customers. |
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A complementary mix of defense and commercial products,
projects, and geographic markets. Management constantly aims
for a diversified mix of businesses that is unified through
common underlying technologies, customer applications, market
relationships or other factors. We believe this complementary
mix, combined with our unique ability to effectively apply
technologies between government and commercial markets, provides
us a strong foundation to sustain and enhance our leadership in
advanced communications and networking technologies. |
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Long-lived customer relationships. We focus on
establishing and cultivating customer relationships that have
the potential for enduring for many years. We believe this has
been particularly successful with a number of government
customers. |
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High quality, cost effective outsourced manufacturing supply
chain. Since inception, we have chosen to strategically
out-source much of our manufacturing operations. We believe this
reduces operating costs, reduces capital investments,
facilitates rapid adoption of the most modern and effective
manufacturing technologies, provides flexible response to
fluctuating product demand, and focuses our resources on
designing for producibility. We manage out-sourced manufacturing
through an ISO-9001 quality process and have established
enduring relationships with key suppliers. |
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Recognition within our market niches for technical innovation
and excellence, product quality, and competitiveness. |
Strategy
We target three basic business objectives:
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1. Offer investors superior opportunities for equity
appreciation through sustained growth in revenues and
earnings. This drives us to identify, select, and pursue
those market opportunities most consistent with this objective. |
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2. Establish enduring relationships with our customers,
work force and suppliers. This compels a long-term view. |
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3. Sustain and enhance our competitive advantages in
advanced communications and networking technologies. We are
fundamentally a technology company, which guides our investments
of management attention, time, and resources. We believe this is
a key reason for our past success on the first two objectives. |
We are involved in a diverse set of inter-related markets and
technologies — we believe much more so than most
companies of comparable size. We believe our business mix has
grown due to the following strategic concepts we tend to apply
in pursuing customers, markets, and technologies:
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Leverage customer funded research and development (R&D)
opportunities. We often offer products and technologies that
are not available “off the shelf” from any supplier
and must be developed, or customized, via funded R&D by a
particular customer. This principle applies, to varying extents,
to both our government and commercial segments. |
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Address increasingly larger markets. We have applied this
same principle for the life of the company. The size of customer
funded opportunities we can credibly address directly correlates
to our annual revenue. By increasing our revenues, we anticipate
we will be more successful in capturing customer funded R&D
opportunities for increasingly larger projects, like we have
with MIDS and Connexion by Boeing. |
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Steadily evolve into “neighboring” products,
projects, technologies & markets. We anticipate
continued growth via evolutionary steps by: |
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1. Selling existing, or customized, versions of
technologies we developed for one customer base to a different
market. This principle can be applied, for instance, to
different segments of the government market, or between
government and commercial markets. It is the primary way we grow
the market segments we address. |
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2. Selling new, but related, technologies or products to
existing customers. This is the primary way we expand the
breadth of technologies and products we offer. |
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Careful targeting of new market opportunities. We
consider several factors in selecting new market opportunities: |
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1. Are there meaningful entry barriers for new
competitors? Examples include specialized technologies or
expertise, a large body of “legacy” software, or
special relationships. |
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2. Are we addressing “right-sized” niches
consistent with our growth objectives? We seek niches large
enough to provide us with significant revenues, but are not
likely to evoke excessive competition. |
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3. Does it involve new, advanced, unproven, and/or
customized technologies? Our technology competence and focus
makes us an attractive supplier to customers who understand, and
are sensitive to, development risks associated with new
technologies. |
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4. Is the opportunity consistent with our market reach
and selling channels? |
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Augment customer funded R&D with discretionary R&D to
enter or leverage new markets or technologies. We use
availability of customer funding or co-investments for product
development as an important factor in choosing where to apply
our own discretionary R&D resources. |
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Invest in R&D, sales and marketing, and capital
facilities to foster a constant flow of new opportunities.
Often we apply discretionary expenditures in a way to promote a
renewable stream of project or market opportunities —
as opposed to developing or promoting specific products or
markets per se. |
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Sustain a large (relative to our size) and highly proficient
engineering staff to capture and perform our target
projects. Since customer funded R&D is an important
aspect of our business, we believe it is |
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important to sustain a large, highly competent, engineering
team. We believe we offer a very competitive compensation,
benefits and work environment to attract and maintain employees.
Perhaps even more important, we believe we tend to seek and
attract engineers who embrace our business approach and the
associated technology challenges it offers. So far, this has
enabled us to offer good value to our customers in terms of
product performance, reduction of technological risks, and
competitive pricing. |
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Continue to take informed, aggressive, diversified and
prudent risks in advancing technologies to achieve leading and
pioneering positions in target markets. Our technical
orientation and competence is usually most valuable in
addressing programs involving significant technical challenges
which often carry the greatest risks. We emphasize the ability
to identify, evaluate, and retire sources of technology risk in
pursuing new program and market opportunities. We also aim to
mitigate those risks by targeting a diversity of projects, by
investing appropriate discretionary R&D or pre-proposal
efforts, by staggering the timing of risky development projects,
by diversifying the customer base, and by accepting risks that
have at least a proportionate amount of expected financial
returns. |
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Sustain our diversified business mix. We believe there is
economic value in maintaining diversity in our technology and
market portfolios and taking active steps to sustain and foster
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Government
Our government segment revenues grew by over 37%, 56% and 30%,
and new orders by over 33%, 30% and 100%, during the fiscal
years 2005, 2004 and 2003, respectively. While there may be
several interpretations or explanations for our growth during
this year, we believe there are three basic themes and believe
those themes may persist in our government markets for several
years:
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1. The critical role of collection and dissemination of
real-time information in executing high-speed, high precision,
highly mobile warfare over dispersed geographic areas. There are
two important aspects of this. One is reflected in the catch
phrase “network-centric warfare,” which emphasizes the
importance of real time data networks of all types via multiple
transmission media. The other is the growing importance of
satellite-based communications, in particular, as the most
reliable method of connecting rapidly moving forces who may
simply out-run the range of terrestrial radio links. |
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2. The growing importance of Internet Protocol
(IP) networks in the Department of Defense (DoD) compared
to older circuit based systems — especially in light
of network-centric warfare. We believe IP networks will drive a
fundamental restructuring of DoD’s secure information
networks, which will take several years to complete. |
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3. We believe that over the next decade or so many of the
previous generation of defense communications satellite networks
will expire or become obsolete. New programs are underway or in
planning to define, develop, procure and deploy systems to
replace them. While we have been successful in capturing defense
satellite ground system business in the past, we believe these
new programs present more opportunities for bidding on new
contracts than we have seen previously. |
We believe these fundamentals offer growth opportunities for
each of our government product areas.
Our government segment includes the following product lines:
(1) Tactical Data Links, (2) Tactical Networking and
Information Assurance, and (3) Mobile Satellite
Communications (MILSATCOM).
Our Tactical Data Links product line is anchored by the MIDS
terminal market and the MIDS Joint Tactical Radio System (MIDS
JTRS) development program. We are a MIDS prime contractor and
are one of only three international and one of two
U.S. qualified providers of MIDS production units.
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MIDS is a specific implementation of a secure, anti-jam,
tactical data radio intended primarily for air-to-air,
air-to-ship, and air-to-ground real time transmission of
situational awareness and command and control information using
the “Link-16” protocol. MIDS JTRS will be a Software
Compliant Architecture (SCA) new generation radio system
for the F/A-18 E/F and A-10 aircraft initially that will perform
all the current MIDS functionality and will be capable of
operating advanced waveforms to meet future network centric
operations radio system requirements.
MIDS terminals have been deployed all over the world and are
fully operational in the U.S. Air Force, Navy and Army
forces. Current plans include system upgrades to the MIDS
terminals that are already deployed as well as terminals to be
delivered in the future. We believe the U.S. government has
invested substantially in Link-16 and MIDS and it is unlikely
that other defense contractors will in the immediate future be
qualified to supply Link-16 terminals for the DoD platforms
designated to receive MIDS.
We also anticipate a number of other countries which operate
their own versions of MIDS-capable platforms (e.g., F-16’s)
or which use other tactical air platforms and tactical ground
based systems but desire to interoperate with U.S. forces,
to procure MIDS terminals. In aggregate, we believe the
international market is approximately as large as the domestic
U.S. market for MIDS. We expect EuroMIDS to compete for
international orders, but it has only recently completed
qualification testing and the EuroMIDS terminal is not qualified
on U.S. produced platforms. International customers may
procure terminals directly from us, or have the
U.S. government acquire them on their behalf via the
Foreign Military Sales program.
MIDS terminals are currently in full rate production and in the
next few years MIDS JTRS is expected to migrate from a
development and qualification program to low rate initial
production phase and then to full rate production. We believe
this will likely lead to higher ordering rates in aggregate.
While MIDS production represents the largest portion of this
product line, we believe MIDS JTRS will eventually surpass the
MIDS production rates and there are other related ongoing and
potential opportunities including development of a low cost
weapon data link and expanded requirements for Link-16
capabilities and support equipment.
We compete with Data Link Solutions (DLS), a joint venture
between Rockwell Collins and BAE (United Kingdom), and EuroMIDS,
which is a consortium comprised of four European contractors,
Selenia (Italy), Thales (France), EADS (Germany), and Indra
(Spain). We are co-developing with DLS the MIDS JTRS radio
system under an accelerated contract for the U.S. Navy and
U.S. Air Force with international participation in the
program.
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Tactical Networking and Information Assurance |
For many years, we have developed and manufactured
“Type 1” DoD approved communications security
devices. Type 1 encryption devices are required for
virtually any communication of classified military information
over radio, satellite, wire line, or fiber optic media.
Type 1 encryption is used to protect information whether it
is transmitted over military or commercial frequency bands or
transmission systems. Prior to the year 2000, most of our
previous Type 1 encryption devices were integrated or
“embedded” into tactical radio products such as MIDS
or our UHF DAMA satellite products.
For the last decade, we have been anticipating increased demand
for Type 1 encryption devices that support IP based
networks. Our KIV-21 stand-alone Type 1 encryptor was our
first product aimed at the IP market. During the past few years,
DoD has moved toward IP encryption and developed a new standard
to create an interoperable environment for such devices. The new
standard is called HAIPIS, or High Assurance Internet Protocol
Interoperability Specification. We are a charter member of the
industry working group charged with maintaining and evolving the
HAIPIS standard. This past year, we were able to obtain
certification for both our first and second HAIPIS compliant
cryptos (the KG-250 and the KG-250A). These are similar
100 megabits per second (Mbps) products that can be applied
to different environments. The HAIPIS standard has become the
security foundation for the DoD’s Global Information Grid
(GIG), an initiative to achieve information superiority by
connecting soldiers to the information they need, when they
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need it, no matter where they are. End to end information
security is a cornerstone of the GIG, and HAIPIS is the standard
by which it is to be achieved.
Another important aspect to the information security market is
the DoD’s efforts to update its communications security
products through an initiative known as “Crypto
Modernization.” The focus of this initiative is to
completely replace the DoD’s legacy inventory of encryptors
with a new generation of programmable cryptographic devices. We
anticipate the U.S. government will invest approximately
$4 billion over ten years to modernize this information
security infrastructure.
In response to these trends, we have developed a programmable,
high assurance cryptographic architecture specifically designed
to support Type 1 networking that is flexible enough to be
applied to both stand-alone network encryptors and multi-channel
embedded network encryptors. Our architecture, dubbed the
Programmable, Scalable Information Assurance Module
(PSIAM) is designed to meet the requirements of Crypto
Modernization, HAIPIS and the GIG. We believe most of our growth
in the information security market is due to our customers’
recognition that the PSIAM meets their emerging information
assurance requirements. Both the KG-250 and KG-250A, and the
Navy’s Common Data Link System are PSIAM based products
that achieved certification this past year. Other important
PSIAM based products and programs undergoing certification which
highlight our ability to compete using this approach include:
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Our gigabit speed Inline Network Encryptor, KG-255. |
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The embedded encryption module for the U.S. Air
Force’s Family of Beyond Line of Sight Terminal (FAB-T). |
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The embedded encryption module for the MIDS JTRS. |
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Our family of high assurance filters including the JMINI High
Assurance Guard for the U.S. Navy and the Secure Gateway/
Trusted Filter for CECOM. |
We are currently developing the second generation of PSIAM
technology, reducing the size and cost of the implementations,
and adding multi-level, multi-channel capabilities. We believe
this technology investment will provide even greater growth
potential than the first generation has the last few years.
For the past 10 years, we have offered VDC products which
provide data communications over noisy, error-prone radio
networks. This VDC product line is compatible with an
interoperable military standard known as MIL-STD 188-184 and is
primarily used on mobile tactical radios for reliable data
communications. We manufacture both gateway and network edge
versions of these products. Many users are involved in
“special operations” and similar light or highly
mobile forces organizations. We believe we hold a dominant
position in a portion of this market with multi-band and SATCOM
radio users, with approximately 18,000 data controller products
fielded. We have strong name brand recognition with these
products, which we believe provide excellent reliability and
performance. This area continues to provide consistent product
sales with excellent margins. The networking features of these
products allow users to realize the connectivity goals of the
GIG today using their legacy radios even before transformation
communication programs such as JTRS are available, albeit at
lower data rates.
There continue to be market opportunities in this product area
through continual deployment of the gateway version of these
products into the DoD’s core network infrastructure, which
in turn results in significant edge product sales. We attempt to
approach this market by anticipating the needs of users, and
provide them with the capabilities they need, when they need it.
Examples of our approach to the market include providing
interface capability to every major tactical radio and computing
device in the DoD inventory, providing messaging applications
that take full advantage of the VDC’s capabilities, and
implementing an IP layer to network radio networks with wired
networks.
We seek to improve our VDC products by providing incremental
advancements to both their network capabilities and
communications performance. Our advantage in this market is our
continuous product evolution and excellent customer support
enabled by our unique knowledge of user requirements.
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Mobile Satellite Communication Systems (MILSATCOM) |
MILSATCOM consist primarily of stand-alone and embedded
satellite modems, terminals, and test and training equipment
operating over the military UHF satellite band and military
satellite communication solutions, which leverage our commercial
broadband satellite technology.
UHF satellite terminals are almost always required to support a
complex set of interoperable networking standards known as
MIL-STD 188-182 and MIL-STD 188-183 — also called,
collectively, UHF DAMA (Demand Assigned Multiple Access). We
have been a leading supplier of UHF DAMA terminals, modems, and
network control systems for both U.S. and allied military and
prime contractors.
Our key products include:
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The UHF DAMA satellite modem embedded in Raytheon’s AN/
PSC-5 “manpack” satcom terminal. (Raytheon has also
designed our UHF DAMA modem into other related terminals
including one for the Tactical Tomahawk cruise missile and other
multi-band tactical radios), |
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The RT-18xx family of modular UHF satcom terminals for airborne,
ship and shore installations, |
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The MD-1324 stand-alone UHF DAMA modem, |
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The DOCCT/ S (DAMA Orderwire Control Channel Trainer/ Simulator)
test and training system, and |
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Related UHF satellite terminal products including antenna
combining systems, network control terminals and software, and
end-user software applications. |
In late fiscal year 2003, we began to expand our MILSATCOM focus
to leverage our broadband commercial satellite technology into
military satellite communications solutions for the
U.S. government and its prime contractors. We believe
significant growth opportunities exist for government broadband
systems across many product areas, including:
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Growth from existing programs including the certification of the
EBEM modem, its transition into full scale production, and the
expansion of this technology into additional satellite
communication segments. |
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The U.S. government’s desire to standardize on a
network-centric IP bandwidth-on-demand satellite modem. One of
the key objectives is to gain the logistics advantage from a
common modem implementation that serves point-to-point SCPC,
network-centric mesh and hub-spoke topologies. We are in an
ideal position to leverage our EBEM (SCPC), LINKWAY
(mesh) and LinkStar (hub-spoke) products to meet the
U.S. government’s requirements. |
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Integration of our existing enterprise VSAT, bandwidth on demand
satellite network systems such as LINKWAY and LinkStar, to
satisfy near term communications requirements of our
U.S. government customers. The Joint Combat Camera Imagery
and Coalition Military Network systems in Iraq exemplify these
types of opportunities. |
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Deployment of a “cable modem” like satellite
communications-on-the-move service that leverages our ArcLight
network technology that we developed to bring broadband
connectivity to business jets. |
Customers and Markets
The primary customers for our government segment are the DoD,
other U.S. government agencies and departments,
international allied nations and large defense contractors.
While most of our commercial customers are based in the United
States, many of our large defense contractor customers have
recently been leveraging our network design experience and the
advanced capabilities of our products to sell communications
products to international military forces. Examples of large
defense contractors with which we have
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worked in the past include Raytheon Systems Company, Lockheed
Martin Corporation, The Boeing Company, Northrop Grumman
Corporation, ITT Industries, and Marconi Communications, Elmer
S.p.A.
We use both direct and indirect sales channels to sell our
government products. We have approximately ten sales and
marketing personnel who offer our government products. All but
one of these sales personnel are located in the United States.
International government sales are conducted primarily through
our U.S. sales personnel. Although many of our sales are
generated from direct sales, we often sell our products to prime
contractors responsible for developing the entire network system
where our products are integrated and embedded into the system.
Our government sales teams consist of engineers, program
managers, marketing managers and contract managers who work
together to identify business opportunities, develop customer
relationships, develop solutions for the customer’s needs,
prepare proposals and negotiate contractual arrangements. The
period of time from initial contact through the point of product
sale and delivery can take over three years for more complex
product developments or for product developments including
prototypes and demonstrations. Products already in production
can usually be delivered to a customer between 90 to
180 days.
Our indirect sales are primarily generated from strategic
relationships with prime contractors for large defense projects
and referrals from existing large defense contractor customers.
Similar to our efforts on the commercial side, we continue to
increase the awareness of the ViaSat brand through a mix of
positive program performance and our customers’
recommendation as well as public relations, advertising, trade
show selling and conference speaking engagements.
Within our government segment, we generally compete with defense
electronics product, subsystem or system manufacturers such as
Rockwell Collins, L3 Communications, Harris, General Dynamics,
BAE Systems or similar companies. We may occasionally compete
directly with the largest defense prime contractors, who are
also customers, including Boeing, Lockheed Martin, Northrop
Grumman or Raytheon Systems. We also frequently partner or team
with these same companies (large or mid-tier) to compete against
other teams for large defense programs. Almost all of the
companies with which we compete are substantially larger than we
are.
Commercial
The introduction of satellite communications technology in the
1950’s represented a fundamental change in communications
networks. A communications satellite, in essence, provides the
ability to route a communications signal through the sky.
Signals are sent from users on the ground to the satellite,
which then amplifies the signal and sends it back to end-users
on the ground. Depending on the altitude of a satellite’s
orbit, it can cover a geographic area, or footprint, larger than
the size of a continent. The key components of a satellite
communications system include:
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satellites, which relay communications signals to and from the
users, |
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gateways, which control the satellite network and connect it to
communications networks on the ground, and |
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user terminals (indoor unit and outdoor unit) connecting the
users to the satellite network. |
The essential advantage of satellite communications is that it
allows a network provider to rapidly deploy new communications
services to large numbers of people anywhere in the footprint of
the satellite. Consequently, satellites can be used to deploy
communication services in developed and developing markets in a
shorter period of time than building ground-based
infrastructure. Moreover, in some areas satellite solutions
11
are less expensive than terrestrial wired and wireless
alternatives. As satellite communications equipment becomes less
expensive and new capabilities emerge in satellite
communications technology, we believe the market for satellite
communications offers growth opportunities.
The commercial satellite communications industry is expected to
be driven by the following major factors: (1) world-wide
demand for communications services in general, and broadband
data networks in particular, (2) the improving
cost-effectiveness of satellite communications for many uses,
(3) recent technological advancements which broaden
applications for and increase the capacity and efficiency of
satellite based networks, and (4) global deregulation and
privatization of government-owned telecommunications carriers.
We provide a variety of satellite communications network
solutions for multiple sectors of the commercial market.
Data Networks. Satellite networks are well suited for
data networks which focus on (1) rapidly deploying new
services across large geographic areas, (2) reaching
multiple user locations separated by long distances,
(3) filling in gaps or providing support for data points of
congestion, or bottlenecks in ground-based communications
networks, and (4) providing communications capabilities in
remote locations and in emerging markets where ground-based
infrastructure has not yet been developed. In addition,
satellite networks are used as a substitute for, or supplement
to, ground-based communications services such as frame relay,
digital subscriber lines, fiber optic cables, and Integrated
Services Digital Networks (ISDN). We believe satellite data
network products and services will present us with growth
opportunities as commercial data networks using satellites are
applied in developed and developing markets throughout the world.
Internet Applications. In recent years, there has also
been an increase in the use of satellites for Internet traffic.
This growth has been centered on connecting consumers and
businesses with the Internet. Satellite capacity is often used
where fiber cable is prohibitively expensive or rare, such as
rural areas or emerging countries. More recently, certain
satellite operators have begun investing in next generation
satellites specifically designed for low cost broadband access
and service providers. We expect satellite communications to
offer a cost-effective augmentation capability for Internet
Service Providers (ISPs), particularly in markets where
ground-based networks are unlikely to be either cost-effective
or abundant. Additionally, satellite broadcast architecture
provides an alternative for ISPs, which are dealing with
congestion associated with the distribution of increasing
amounts of high-capacity multimedia content on the Internet.
Our commercial business offers a broad range of satellite
communications and other wireless communications products and
solutions in the following product areas: (1) Satellite
Networks comprising consumer and mobile broadband products,
enterprise VSAT networks products and services, systems design
and technology development and MMIC design and development; and
(2) Antenna Systems.
Satellite Networks
Our consumer broadband products enable broadband access to the
global information infrastructure via satellites. We provide
system solutions, equipment and support to service providers who
distribute directly to end users, such as consumers, and provide
the equipment employed by the end user of the service.
For the fixed site, last mile broadband access market, we
believe the key elements for a cost-effective solution for our
customers are (1) access to a large pool of nationwide, low
cost satellite capacity, (2) availability of low cost
customer premise equipment (CPE), and (3) low per
subscriber operational and support costs to support large scale
deployments. We focus on providing solutions which make more
efficient use of the available satellite bandwidth (i.e., more
subscribers per satellite), leverage mass market chipsets and
innovative radio frequency technology to create low cost CPE,
and include an extensive set of tools to automate customer
fulfillment and support. Equally important is our emphasis on
working closely with satellite operators (e.g., WildBlue and
Telesat) which are investing in next generation satellites
specifically designed for low cost broadband access and service
providers (e.g., Orbit Data Services and the National
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Rural Telecommunications Cooperative) with the distribution
channels and support infrastructure to successfully capture the
target end users.
We have pioneered development of DOCSIS-based technology for low
cost CPE and network scalability complementing our mature and
feature-rich DVB-RCS-based solution. Our portfolio of broadband
access technologies also includes advanced products to improve
capacity on each satellite.
With the emergence of increasingly capable satellite networking
technologies, we have been able to develop cost-effective mobile
broadband products. We have certified products and systems for
in-flight, high speed, two-way Internet and broadcast
applications. We are developing complementary products for the
maritime and ground mobile markets.
For the mobile broadband access market, we believe the key
elements for a cost-effective customer solution are
(1) ubiquitous coverage (including regulatory approvals),
(2) equipment suitable for the mobile platform and
(3) sufficient capacity and speed to distinguish the
service from mobile telephony or more limited services, such as
those provided by Inmarsat. For this market, we focus on
solutions with unique technical characteristics necessary to
operate at high rates using a small antenna on a moving platform
(commercial aircraft, business jets, trains, trucks,
automobiles). Our experience with spread spectrum systems with
our government products plays a role in bringing the right
technologies to bear. We believe it is also important to partner
with satellite operators which are committed to providing
broadband coverage in areas needed by the mobile market (e.g.
Connexion by Boeing and SES Americom/ ARINC) to create a unified
solution.
We believe our advantages in this market include our high
performance spread spectrum technology, our broadband frequency
reuse PCMA technology and our position as the current supplier
to the leading service providers in this market.
We are a global supplier of VSAT satellite networks, services
and products to enterprise customers as well as service
providers, satellite operators, foreign governments and the
U.S. government. We design, manufacture and sell
satellite-networking products and provide services associated
with their use and life cycle support. We also manage the
delivery, installation and initial activation of the customer
equipment around the world. In addition, we offer long-term
software maintenance agreements, technical support agreements
and operate a 24/7 network operations center to support our
customer base. In North America, we own and operate a VSAT
shared hub network and offer satellite network service to
enterprise customers.
Customers use our products to enable connectivity in corporate
networks, retail facilities, schools, public institutions, oil
and gas exploration and anywhere quick deployable, ubiquitous,
communications infrastructure is needed. The products are also
used to extend broadband connectivity to various locations for
Internet and other telecommunications requirements including
VOIP. Once installed and activated, our systems enable customers
to transport data, video, and voice communication within a
private network or across the world.
Using feedback from user group meetings, customers and our sales
team we continue to design leading edge VSAT solutions based on
market needs. We believe our entrepreneurial culture and
technical excellence allows us to react quickly to market
requirements, implement new features and applications that
create a competitive advantage.
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Satellite Networking Systems Design and Technology
Development |
We perform research, systems engineering, and custom product
design and development in satellite communications for ground
and space systems primarily through our Comsat Laboratories
business. Specifically, we have expertise in the areas of
satellite network design, planning, and management; modulation
and coding; payload architecture design; terminal design and
development; Internet technologies; and modeling, analysis, and
simulation.
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Our strategy is to leverage our reputation as a center of
excellence for innovative ideas and technologies in satellite
communications to win research and development programs funded
by government and commercial customers. We believe we have
talented satellite communications engineers encompassing many
relevant disciplines, a large portfolio of intellectual
property, and existing platforms and products that can be
enhanced and customized to meet customers’ requirements. We
believe these strengths give us a competitive advantage to
capture engineering services and system design and development
programs in the satellite communications market. Typical
satellite communications companies in this industry do not
perform customized design and development work for both
government and commercial customers. Instead, most companies
only sell their standard hardware and software products.
Although some companies build large networks with terminals and
gateways, we believe we are one of the few companies with the
ability to design and deliver complex customized networks
incorporating many advanced communications techniques and
integrating various hardware and software elements.
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MMIC Design and Development |
Our wholly owned subsidiary, USM, provides custom high frequency
MMICs and integrated assemblies to select commercial and
government customers. Targeted markets include enterprise VSAT,
consumer and mobile broadband, military airborne and shipboard,
space-based electronics, and terrestrial based interactive
satellite communications. We have access to a wide range of
integrated circuit technologies allowing it to offer optimum
solutions for a given application.
Our primary strategy is to offer fast turn, high performance
custom MMIC solutions to specific customers and markets. We tend
to be selective in the opportunities we pursue thereby focusing
our resources to gain maximum market penetration. We operate in
a fab-less business environment leveraging domestic and
off-shore contract manufacturing, including semiconductor wafer
manufacturing, to provide the highest value to our customers.
This approach avoids the high cost of internal capitalization
and, where allowed by federal law, leverages the lower cost
manufacturing available outside the United States. Another key
strategy is to aggressively reduce product costs which in turn
enables new markets to develop. We have highly skilled engineers
who have extensive MMIC design and development experience.
Skills include electrical design, mechanical and thermal design,
manufacturing process engineering, and metallurgy.
Antenna Systems
We are a global provider of fixed and mobile ground-based
antenna systems for the following applications: (1) gateway
infrastructure, (2) remote sensing, (3) tracking,
telemetry and control, (4) military tactical and strategic
terminals, and (5) antenna products. Our products include
antennas, servo control equipment, monitor and control software,
and specialty converters and modems. These systems support
functions in the L, S, C, X, Ku, and Ka-band frequency spectrums.
Gateways. Our gateway products represent a key component
of our ability to offer complete network development and
integration services. The gateway products connect satellites to
the communications infrastructure on the ground, such as public
switched telephone networks. We offer a number of different
gateway products depending on the type, speed and size of the
network. The gateways consist of our internally developed
antenna and signal processing hardware and software as well as
third party hardware. Although each of these components employs
advanced technologies, the most complex components of a gateway
are the overall system design and the software used to integrate
each of the hardware components and operate the system. Gateways
represent a key-operating component of any satellite network
since gateways are required to interface the satellite portion
of the network to the terrestrial communications network.
We believe we will continue to derive benefits and efficiencies
from our gateway building capabilities. Since the gateway is a
complex and central component of any network, the optimization
of the gateway for the specific network use is critical to
optimizing the performance of the entire network. The ability to
provide gateways and integrate those gateways into our
innovative network solutions should provide us with an advantage
over other network manufacturers and integrators, most of which
purchase gateways from third
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parties. We have extensive experience in developing gateways for
systems using Ka-band technologies. We believe these new
technologies are a cornerstone of emerging satellite services
like broadband on demand.
Remote Sensing. We have been a leader in the satellite
imaging and remote sensing ground station market for over
20 years. Remote sensing ground stations receive images of
the earth transmitted from low earth orbit satellites. These
images are often collected for both civilian and military
purposes. Our remote sensing ground station products typically
include software to provide satellite pre-mission planning,
automated pre-pass set-up, system performance integrity
analysis, signal routing assignments and maintenance actions.
Tracking, Telemetry and Control. Our tracking, telemetry
and command products are designed to provide a means for
monitoring aircraft and missiles during flight tests as well as
monitoring and controlling satellites. This equipment is used by
the government and commercial flight test ranges as well as by
commercial satellite operators.
Military Terminals. Our military terminal products are
used to provide tactical and strategic communications either
over satellites or for point-to-point applications. These
systems range from small diameter antennas with associated
control equipment for shipboard applications to large diameter
antenna systems for military gateway applications. These systems
include advanced technology Ka-band antenna systems.
Antenna Products. Our antenna products provide standard
off-the-shelf antennas for typical geosynchronous satellite
applications. Although our antenna systems are often sold and
integrated with our other satellite communication products, we
also offer a wide range of antenna systems as separate units.
Our antennas range from three meters to 18 meters in diameter.
Customers of our antenna systems include cable TV uplink
stations and cable system providers that operate head-end
receive stations, VSAT service providers, and various satellite
communication system integrators that require traditional
satellite communication capability.
Customers and Markets
The majority of our commercial segment customers are satellite
network integrators, large communications service providers and
corporations requiring complex communications and networking
solutions. Over the past couple of years, we have significantly
expanded our commercial customer base both domestically and
internationally.
Significant commercial customers in the last fiscal year
included Eutelsat, Intelsat, Boeing, ARINC, WildBlue, SES
Americom, Telespazio, Shoppers Drug Mart, SMART, Suburban
Telecom, ITT, Honeywell and Lockheed.
We primarily use direct sales channels to market and sell our
products and services. Our marketing and sales activities are
organized geographically in domestic and global markets. Our
sales and marketing group includes approximately 34 persons,
with six located outside the United States.
Our sales teams consist of regional sales directors, regional
sales managers and sales engineers, who act as the primary
interface to establish account relationships and determine
technical requirements for customer networks. In addition to our
sales force, we maintain a highly trained service staff to
provide technical product and service support to our customers.
The sales cycle in the commercial satellite network market is
lengthy and it is not unusual for a sale to take up to
18 months from the initial contact through the execution of
the agreement. The sales process often includes several network
design iterations, network demonstrations and pilot networks
consisting of a few sites.
In addition, we seek to develop key strategic relationships to
market and sell our network products and services. We seek
strategic relationships and partners based on many factors,
including financial resources, technical capability, geographic
location and market presence. We also obtain sales to new
customers through referrals from existing customers, industry
suppliers, and other sources such as participation in trade shows
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and advertising. We actively work at increasing awareness for
our brand through a mix of public relations, advertising, trade
show selling and conference speaking engagements.
Additionally, we direct our sales and marketing efforts to our
strategic partners, primarily through our senior management
relationships. In some cases a strategic ally may be the prime
contractor for a system or network installation and will
subcontract a portion of the project to us. In other cases, the
strategic ally may recommend us as the prime contractor for the
design and integration of the network.
We provide service, repair and technical support for our
products and services. Through our sales teams and support
services, we are constantly made aware of customers’ needs
and their use of products and services. Accordingly, a superior
level of continuing customer service and support is integral to
our objective of developing and maintaining long-term
relationships with our customers. The majority of our service
and support activities are provided by our field engineering
team, systems engineers, and sales and administrative support
personnel, both on-site at the customer’s location and by
telephone.
The commercial communications industry is highly competitive. As
a provider of commercial network products and designer of
commercial network solutions in the United States and
internationally, we compete with a number of wireless and
ground-based communications service providers. Many of these
competitors have significant competitive advantages, including
strong customer relationships, more experience with regulatory
compliance, greater financial and management resources and
control over central communications networks. To compete with
these providers, we emphasize:
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the overall cost of our satellite networks, which includes both
equipment and bandwidth costs, as compared to products offered
by ground-based and other satellite service providers, |
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the distinct advantages of satellite data networks, |
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our end-to-end network implementation capabilities, and |
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our network management experience. |
Our principal competitors in Satellite Networks are Hughes
Network Systems, Gilat Satellite Networks Ltd., EMS
Technologies, Inc., Nera ASA, ND Satcom and iDirect
Technologies, each of which offers a broad range of satellite
communications products and services. Our principal competitors
in the supply of Antenna Systems are Andrew Corporation, General
Dynamics and Titan Corporation.
In competing with these companies, we emphasize:
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the innovative and flexible features integrated into our
products, |
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our proven designs and network integration services for complex,
customized network needs, and |
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the increased bandwidth efficiency offered by our networks and
products. |
Strategic Ventures
TrellisWare Technologies. In August 2000, we established
TrellisWare Technologies Inc., a majority-owned spin-off of
ViaSat. TrellisWare was formed to focus on developing products
based on maximum likelihood processing technology, a signal
processing technology that is expected to greatly improve the
performance of broadband communications in challenging
environments (multi-path, interference and high channel
dynamics).
Teaming Arrangements. We regularly enter into teaming
arrangements with other government contractors to more
effectively capture complex government programs. In these
teaming arrangements we may act as either the prime contractor
or subcontractor bidder. Once awarded a contract, generally the
prime contractor is obligated, with some exceptions, to award a
contract to the relevant subcontractors on the team.
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We expect to continue to actively seek strategic relationships
and ventures with companies whose financial, marketing,
operational or technological resources can accelerate the
introduction of new technologies and the penetration of new
markets.
Research and Development
We believe our future success depends on the ability to adapt to
the rapidly changing satellite communications and related signal
processing and networking software environment. Therefore, the
continued timely development and introduction of new products is
essential in maintaining our competitive position. We develop
most of our products in-house and have a research and
development and engineering staff, which includes over 545
engineers.
A significant portion of our research and development efforts
have generally been conducted in direct response to the specific
requirements of a customer’s order and, accordingly, these
amounts are included in the cost of sales when incurred and the
related funding is included in revenues at that time.
The portion of our contract revenues which includes research and
development funded by government and commercial customers during
fiscal year 2005 was approximately $105.7 million, during
fiscal year 2004 was approximately $81.0 million, and
during fiscal year 2003 was approximately $74.1 million. In
addition, we incurred $8.1 million in fiscal year 2005,
$10.0 million in fiscal year 2004, and $16.0 million
in fiscal year 2003, on independent research and development,
which is not directly funded by a third party. Funded research
and development contains a profit component and is therefore not
directly comparable to independent research and development. As
a government contractor, we also are able to recover a portion
of our independent research and development expenses, consisting
primarily of salaries and other personnel-related expenses,
supplies and prototype materials related to research and
development programs.
Manufacturing
Our manufacturing objective is to produce high-quality products
that conform to specifications at the lowest possible
manufacturing cost. We primarily utilize a range of contract
manufacturers, based on the volume of the production, to reduce
the costs of products and to support rapid increases in delivery
rates when needed. As part of our manufacturing process, we
conduct extensive testing and quality control procedures for all
products before they are delivered to customers.
Contract manufacturers produce products for many different
customers and are able to pass on the benefits of large scale
manufacturing to their customers. These manufacturers are able
to achieve high quality products with lower levels of costs by
(1) exercising their high-volume purchasing power,
(2) employing advanced and efficient production equipment
and systems on a full-time basis, and (3) using a highly
skilled workforce. Our primary contract manufacturers include
Spectral Response, Inc., SMS Technologies, Inc. and MC Assembly.
Our experienced management team facilitates the efficient
contract manufacturing process through the development of strong
relationships with a number of different contract manufacturers.
By negotiating beneficial contract provisions and purchasing
some of the equipment needed to manufacture our products, we
retain the ability to move the production of our products from
one contract manufacturing source to another if required. Our
operations management has experience in the successful
transition from in-house production to contract manufacturing.
The degree to which we employ contract manufacturing depends on
the maturity of the product. We intend to limit our internal
manufacturing capacity to new product development support and
customized products that need to be manufactured in strict
accordance with a customer’s specifications and delivery
schedule. Therefore, our internal manufacturing capability for
standard products has been, and is expected to continue to be,
very limited, and we intend to rely on contract manufacturers
for large-scale manufacturing.
We also rely on outside vendors to manufacture specific
components and subassemblies used in the production of our
products. Some components, subassemblies and services necessary
for the manufacture of our products are obtained from a sole
supplier or a limited group of suppliers. In particular, Texas
Instruments
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and Broadcom are sole source suppliers of certain digital signal
processing chips, which are critical components we use in many
of our products.
Backlog
As reflected in the table below, funded and firm (funded plus
unfunded) backlog increased during fiscal year 2005 with the
increases in firm backlog coming from both our government and
commercial segments. New contract awards in the current year
increased backlog to a new all-time high for us.